In addition to the analysis of the state of the Nigerian
economy in our Monday special Independence edition, this article attempts to
look at the same topic with particular emphasis on the value of the naira, rate
of inflation, foreign reserve and growth of the non-oil sector.
Value of the Naira
As is often the case with any country that operates a
mono-product economy, the state of the Nigerian economy has been dictated
largely by the prevailing international market price of crude oil (its chief
export commodity) and the people’s huge appetite for imported goods.
Frequent fluctuations in the price of petroleum has often
left the Central Bank of Nigeria (CBN) with very limited amounts of major
international currencies to offer for bidding at its biweekly Wholesale Dutch
Auction System (WDAS) foreign exchange market. And with the ever rising demand
pressure from companies and individuals wishing to repatriate earnings or pay
for foreign imports, there is usually recourse to unofficial sourcing of such
foreign currencies at a higher naira value.
In fact, there were times when the total dollar demand at
the official WDAS market averaged $450 million whereas the CBN could only offer
a little above $300 million per bidding session.
Faced with this untamed demand for forex and its negative
impact on the naira, the apex bank, at a time, began wondering what people did
with their currency purchases. Its governor, Lamido Sanusi, and his principal
officers were said to have requested strict compliance to the regulations
guiding forex utilization while also warning of appropriate sanctions against
any breaches. Banks were even required to avail the regulatory institution with
records of their forex transactions.
The CBN also tried to curb round tripping activities by
increasing the weekly forex sales by international oil firms to such other
approved windows like banks and bureaux de change. But all this seems to have
made little, if any difference, as the value of the local currency continues to
take a plunge.
Only a little margin exists between the naira’s depreciation
pattern and the path reportedly predicted some years ago by the International
Monetary Fund (IMF).
The IMF was said to have drawn up a projection of the
naira’s exchange rate after conducting an evaluation of Nigeria’s
macro-economic indices. According to the report, the international agency had
predicted an official exchange rate of N148.70 to the dollar for 2009, N149.90
for 2010, N155.10 for 2011, N166.10 for 2012, N177.70 for 2013, N189.90 for
2014 and N202.70 for 2015.
So far, it can be argued that the IMF’s predictions have not
manifested at the WDAS market. This is probably due to the CBN’s recent
increase of its forex rate target band from between N140.00 and N155.00 per
dollar to between N150.00 and N160.00.
Rather, the projections have been largely reflective of the situation in
the open market where the naira exchanged for an average of N153.48 to the
dollar in 2009, N156.30 in 2011 and fell to as low as N163.68 a few months ago.
The current official rate is N157.20 per dollar while it
sells for N168.35 at the parallel market.
Rate of Inflation
Related to the constant depreciation of the nation’s
currency is the rising rate of inflation.
Payment for imported commodities with foreign currencies
that were procured at high costs means that such items would need to be sold at
even higher naira prices in order for their merchants to make any profits.
In other words, since the CBN is always unable to meet the
foreign exchange demands of international businessmen, such merchants often
resort to sourcing their shortfalls from the costly unofficial market and
eventually spread these costs on the prices of their merchandise.
Again, the cost of raising business capital from banks in
Nigeria has remained high especially in the wake of the recent crisis that
rocked the banking sector.
To check this, the CBN alters its monetary policy rate (MPR)
and had, for the main part of last year, left it at 12 percent with a view to
achieving a single digit inflation rate. But the year still ended with a 10.3
per cent rate.
The partial removal of petrol subsidy which came into effect
early this year has also contributed in worsening the inflationary situation in
the country. President Goodluck Jonathan had, in his New Year address to the
nation, announced a complete withdrawal of the remaining N65.00 subsidy on the
litre price of petrol; saying that his government had rather approved a new
price of N141.00.
After nearly a week of nationwide mass protests that began
on January 9, organized by labour and civil society groups, the government was
forced to negotiate a 50 per cent withdrawal which established the current
price of N97.00 per litre.
The general increase in consumer prices which attended this
subsidy withdrawal was later to be exacerbated by the new electricity tariffs
recently introduced by the federal government.
The consumer price index (CPI) which is often used by the
National Bureau of Statistics (NBS) as the basis for computing the rate of
inflation has also indicated a 20 basis points increase from the 12.7 per cent
inflation rate recorded in May to a 12.9 figure in June.
The bureau attributed this partly to the new electricity
tariffs announced by the government.
“The CPI which measures inflation rose to 12.9 per cent
year-on-year in June 2012. The year-on-year change could be partly attributable
to persistent increase in the prices of some farm produce such as yam tubers as
well as the increase in the electricity tariff…”
The CBN which uses monetary policy instruments to control
inflation is apparently not panicked by the rising rate as it expects that such
sharp increases have been known to wear off with time.
According to the apex bank’s governor, Lamido Sanusi, while
speaking after a Monetary Policy Committee (MPC) meeting about three months
ago, “staff estimates indicate that inflation in the first two quarters of 2012
would range between 11.0 per cent and 14.5 per cent, and then moderate steadily
towards the single digit zone by late 2013. Real interest rates are therefore
likely to remain positive on a trend basis, even if the rate of inflation were
to rise briefly above the MPR in the second quarter.”
Analysts are, however, sceptical about Sanusi’s hope of
achieving a single-digit inflation rate. They see such happening only where the
government is able to maintain a fiscal restraint, ensure steady supply of
refined petroleum products, intensify its power sector reform efforts,
rehabilitate collapsed infrastructure and support local industries by reducing
the nation’s dependence on foreign goods import.
State of Foreign Reserve
Crude oil export is Nigeria’s main source of foreign
revenue. And like the value of the naira and the rate of inflation already
discussed above, the state Nigeria’s external reserve depends on a number of
variables, chief of which is the international price of petroleum.
Even with a favourable market price, internal and
international crises can also affect revenue accruing from a country’s export
earnings. In the case of Nigeria, especially during the period between 2007 and
2009 when youth militia groups ran roughshod over the creeks of the Niger
Delta, the country’s oil export was significantly reduced, leading to a drop in
its foreign currency earnings and, by extension, the external reserve which
fell below $28 billion.
In fact, the Niger Delta crisis had contributed to a global
shortage in crude oil supply, thereby forcing up the $65.00 market price to as
much as $100.00. But since Nigeria’s production fell below its OPEC approved
limit of two billion barrels per day (no thanks to militant youth), there was
hardly any way of officially exporting enough to take advantage of the global
Nigeria’s foreign reserve did rise again in the aftermath of
the federal government’s amnesty programme for repentant militants. According
to available records, the account showed a reserve of $38.59 billion in August
2010 before the figure began to hover around a month-on-month average of $36.62
As at date, the country’s external reserve stands at $38.64
State of non-oil sector growth
The non-oil sector of the Nigerian economy has been
described as comprising those groups of economic activities which are not
directly linked to the petroleum and gas sector.
Examples of such activities would naturally include
agriculture, solid minerals, manufacturing, telecommunications, construction,
real estate, hotels and restaurants, transportation, tourism, entertainment and
According to NBS sources, agriculture makes the largest
contribution of 40 per cent to the nation’s gross domestic product (GDP). This
is against the 15 per cent contribution from petroleum even though its export
generates 95 per cent of the country’s foreign exchange earnings.
Telecommunications is another subsector that has contributed
immensely to the growth of the GDP.
“This sector continued to perform impressively and has
remained one of the major drivers of growth in the Nigerian economy, with its
contribution to the total GDP increasing continuously,” the bureau reported.
The statistics office had in another report early this year,
said that the Nigerian economy grew at a faster rate in the fourth quarter of
2011 because of a stronger performance in the non-oil sector, particularly
telecoms. Whereas the GDP grew by 7.68 per cent during the period, the non-oil
sector recorded a 9.07 per cent growth rate within the same period, largely
driven by improved activities in telecoms, building and construction, hotel and
restaurant and business services.
The telecoms subsector alone was reported to have recorded a
real GDP growth of 36.31 per cent in this period. And analysts believe that
even though this leap has not been witnessed in the other non-oil sector
activities, investors still have reason to remain optimistic about the consumer
potential in Nigeria.
FG Recorded N150.36bn Fiscal Deficit In April – CBN
The Federal Government recorded a fiscal deficit of N150.36bn in April, after recording an aggregate expenditure of N559.67bn and retained revenue of N409.31bn.
Figures obtained from the Central Bank of Nigeria’s April report on ‘Fiscal operations of the Federal Government’ revealed at the weekend.
The report shows that the federal revenue rose by 28.2 per cent in April 2021 to N1.12tn in relation to N862.79bn in March 2021, due to improvement in non-oil earnings.
It also shows that the provisional aggregate expenditure of the FGN put at N559.67bn was 50.6 per cent below the budget benchmark and 59.4 per cent short of the level in March 2021.
Also, the fiscal operations of the Federal Government in April 2021, according to the report, contracted by 67.8 per cent, relative to the budget estimate.
Part of the report read “Federation revenue rose by 28.2 per cent in April 2021 to N1.12tn, relative to N862.79bn in March 2021, owing to improved non-oil earnings.
“However, the retained revenue of the Federal Government of Nigeria at N409.31bn, was 38.5 per cent below target.
“Similarly, the provisional aggregate expenditure of the FGN, at N559.67bn, was 50.6 per cent below the budget benchmark and 59.4 per cent short of the level in March 2021.
“Consequently, the fiscal operations of the FGN in April 2021 contracted by 67.8 per cent, relative to the budget estimate.”
It added that the FGN debt outstanding, as of the end-March 2021, stood at N28,984.3bn and represented a 15.8 per cent increase, relative to its level in March 2021.
TSA Promotes Transparency, Accountability In Revenue Collection In Kebbi – Chairman
Alhaji Iliyasu Arzuka-Jega, Chairman, Kebbi State Board of Internal Revenue, has said that the introduction of Treasury Single Account (TSA) has encouraged accuracy, efficiency and accountability in revenue collection in the state.
Arzuka-Jega stated this at a news conference yesterday in Birnin Kebbi, the Kebbi State capital.
The Tide source reports that TSA is a public accounting system whereby government receipt, revenue and income are collected into one single account.
The Central Bank of Nigeria (CBN) is responsible for the maintenance and management on such account.
It was proposed by the Federal Government in 2012 and fully implemented by the Buhari led-administration.
Arzuka-Jega said that the introduction of digital revenue collection techniques assisted the board towards simplifying its work more convenient and easy.
He said that, “We are now in the era of technology, all our collections have been upgraded from manual to digital.
“In this circumstances, we found it necessary not to be left behind towards ensuring that leakages are blocked and revenues collected enter into government’s coffers.
“All our collections have now been centralised because we operate Single Treasury Account (TSA), where all revenue realised go in there, this has put an end to divertion of fund.”
The Chairman said that the board had recorded significant impact of TSA since inception, as against previous years when revenue collections whether external or internal were done manually.
He said that the manual method of revenue collction was fraught with irregularities which resulted to situation where fund could not be accounted for.
“Now, we do receive payments from Lagos and other states, and we only see evidence of payments made to our platform under the TSA,” he said.
NNPC Explains 2020 Audited Report
The Nigerian National Petroleum Corporation (NNPC) has explained the controversial areas of its 2020 audited financial report that placed the corporation on a profit lane.
It would be recalled that on August 26, President Muhammadu Buhari announced a profit after tax of N287billion by the corporation in 2020, the first of its kind in the oil giant’s 44-year history.
This feat, which was commended by Buhari, had also won the Group Managing Director of the corporation,MalamMeleKyari-led management accolades from stakeholders and Nigerians from all walks of life.
Kyari, however, explained how the corporation’s performance turned out positive at a time the negative impact of the Covid-19 pandemic affected businesses worldwide.
Also, the Group Executive Director, Finance & Accounts, Mr Umar Ajiya, also shed more light on the development, and equally addressed some of the issues raised by those who doubt the veracity of the profit declared by the corporation.
He said the trend of real openness has begun not only in the NNPC but also in the Nigerian petroleum industry, especially with the signing of the Petroleum Industry Act (PIA).
Ajiya said that during the period under review, the NNPC took some unprecedented steps among which was cost optimisation aimed at refocusing its businesses.
Also, in the week, the Nigerian Gas Marketing Company Limited (NGMC), a subsidiary of NNPC, restated its commitment to the development of its host communities.
The Managing Director of the company, Mr Justin Ezeala, made the commitment at the opening ceremony of the Women Skills Acquisition Programme for its host communities in its northern operations.
He said NGMC was committed to developing a robust sustainable relationship with all its host communities, and disclosed that the beneficiaries were carefully nominated by executives of their respective communities and would undergo intensive three-week training in catering, tailoring/fashion design, hairdressing and make-up (including pedicure, manicure andgele tying).
He tasked the host communities on the sustenance of the existing peaceful relationship while assuring them of the company’s continued support.
Addressing the beneficiaries, the Lead Consultant, Bernard Emekpe, said the programme was a testament to NNPC’s vision of engaging the communities in which it operates.
He advised the beneficiaries to see this as a lifetime opportunity and take control of their destiny.
A representative of the host communities, Otokina Goodluck, and some of the beneficiaries said the program was a life-changing opportunity, and promised to make judicious use of it.
The beneficiaries were drawn from Ajaokuta, Geregu, and Aku communities in Kogi State.
Meanwhile, the Republic of Norway has commended the Federal Government on the successful signing of the Petroleum Industry Act (PIA).
The Norwegian Ambassador to Nigeria, Knut EilivLein, gave the commendation during a business visit to the Minister of State for Petroleum Resources, Chief Timipre Sylva in Abuja.
He said they were delighted at the signing of the bill which he said would accelerate development and strengthen the oil and gas industry.
On his part, the Minister of State for Petroleum Resources, Chief Timipre Sylva, said the difference between past efforts and the eventual PIB that was passed by the National Assembly was that all industry stakeholders, including government agencies were carried along.
Still, on the week under review, the GMD was conferred the BusinessDay Energy Executive of the Year Award by BusinessDay Newspaper Management in recognition of his giant strides in repositioning the oil and gas industry in Nigeria.
Receiving the award in Abuja, Kyari said the trust by Buhari was the propelling force behind the many achievements recorded in the nation’s oil and gas sector within the last two years.
He described his position and the confidence that he enjoys from the President as a privilege, stressing that he and members of his management team were working hard to justify the trust in the interest of the nation and to the benefit of Nigerians.
He attributed the transformation and recent profit by the corporation to quality leadership and prudent management of resources, noting that it was part of his efforts towards keeping the trust.
The GMD stated that the corporation’s courage to publish its 2018 Audited Financial Statement with a huge loss was in line with his management resolve to be transparent and accountable to the public, emphasizing that the success story of ¦ 287billion profit in the 2020 financials was a result of the determination to do things differently.
The NNPC helmsman, while appreciating the management of BusinessDay Media Limited for the award, declared, “As the biggest company with the largest assets in Africa, NNPC has no reason not to make a profit.”
Earlier in his remarks, the Managing Director of BusinessDay Media Limited, Dr Ogho Okiti, said globally acceptable parameters were adopted in selecting the awardees.
“In addition, our Business Research and Intelligence Unit (BRIU) in conjunction with our Oil and Gas Editorial Team have carefully analysed the data available on each company as well as their work programme recorded with the DPR for the period between 2019 and 2020 to arrive the selection”, he said.
Also speaking, the Father of the Day, King Alfred Papa Preye Diete-Spiff, acknowledged the contributions of the oil and gas industry to national development, and called for diversification of the economy.
For piloting the corporation into the post-Petroleum Industry Act era, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) pledged its unalloyed support for the management of the NNPC.
The Group Chairman, PENGASSAN, Comrade Victor Odor, disclosed this during a courtesy visit to the Group General Manager, Group Public Affairs Division (GPAD), GarbaDeen Muhammad, in his office in Abuja.
Odor, who said the visit was to felicitate with the corporation’s spokesman on his appointment, declared that the union would stop at nothing to defend the corporation’s current position as a profit-making company against those who believe that NNPC could never do well, adding that the NNPC GMD and his management team have done well in repositioning the corporation and deserved support.
He said the union would focus more on functional conflict management than disruptive conflict management in its constructive engagement with the management to ensure sustainable growth and profitability for the corporation.
Responding, the Group General Manager, Group Public Affairs Division, GarbaDeen Muhammad, who appreciated the union leaders for the kind gesture, said the GMD was very passionate about repositioning the corporation and the entire oil and gas industry.
He assured the union leaders that management was appreciative of their support and was always ready to work with them to take the corporation to greater heights.
The Group Chairman of PENGASSAN was accompanied on the visit by the Group Vice Chairman, Comrade EghosaAghimien, and Group Secretary of PENGASSAN, Comrade OlugbengaShokunbi.
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